Definition of Bonus under Payment of Bonus Act 1956
As Per Payment of Bonus Act 1965, The Bonus is a financial reward given by the employer to its employees, shareholders, and sometimes to its customers as well. It is a gesture of gratitude for doing one’s job well. It is an extra amount or reward in the form of cash or gift and is not a part of your existing salary. It is a global practice and is usually given at the time of holiday or financial year-end to employees with merit and outstanding performance.
A bonus is a gesture, which helps in boosting employees’ morale to achieve higher goals for the company and self-growth. It helps to focus better on your skill sets and drives you to better your skills.
The distribution of the bonus is different for different companies. Some employees work on a commission basis and get a certain percentage for bringing business while others may have it pre-defined in their contract. With time bonuses have become flexible and purely on performance irrespective of your position in the organization.
Why Do Organizations Give Bonuses?
Bonus is one of the many rituals that has been a part of the corporate world for many years.
Here are some of the top reasons why employers provide bonuses to their employees:
- Companies provide bonuses to attract as well as retain good talent along the way.
- Besides, bonuses are also used as a tool to encourage employees to put their best foot forward and always be their productive selves.
- It paves the way for healthy competition among employees in the company
According to a recent study, 76 percent of organizations planned to give a bonus in 2021 to improve employee engagement amid the pandemic.
Types of Bonuses
There are multiple number of bonuses. While some are distributed quarterly, others are given yearly. While some depend on an employee’s positions, others depend completely on one’s performance.
All that said, here are some of the common bonuses provided by most organizations:
Annual Bonuses
These bonuses are based on the performance of the organization. That means employees can either get a big or small amount/nothing. For the unintended, annual bonuses are also considered profit sharing.
One of the major reasons why employers wait for the year-end to release such bonuses is clearly to stop employees from leaving.
Spot Bonuses
Spot bonuses are given to employees who think out-of-the-box and put 110% of their potential into a vital task. Say, for instance, XYZ employee worked overtime for a project that ultimately benefited the company’s growth. In this case, the manager can request the higher management to provide some additional compensation to the employee for his/her hard work and dedication. This type of bonus is called a spot bonus.
Signing Bonuses
Signing bonuses are given to newly joining employees. Organizations offer this bonus to new employees to help them relocate for the new job. This not just helps employers to convince the candidate to accept the job offer but also makes up for high salary demands.
Retention Bonuses
A retention bonus and a signing bonus are almost the same. While signing bonuses are given to newly joining employees, retention bonuses are given to retain the best talent in the organization. When employers feel that their best talents may be looking for a change or getting a competitive offer elsewhere, they use retention bonuses as a tool to engage and retain them.
Holiday Bonus
Holiday bonuses are yet another tool to recognize employees. From Christmas to Diwali, different companies give bonuses at different festivals. Without any doubt, employees wait for this bonus as it helps them to meet their expenses during the festivities.
Referral Bonus
Employers provide this bonus to motivate their employees for coming up with good references for openings in their organizations. Need to mention, these bonuses are only released when the referred person is selected and has started working.
Are Bonuses Guaranteed?
Not at all.
It is completely up to the organization to provide bonuses or not. There is no such mandate related to employee bonuses in India.
Employers who value employee engagement can consider bonuses. On the other hand, companies who see bonuses as an unnecessary practice can say No to them. There is no compulsion.
Are Bonuses Negotiable?
The answer to this question depends on the company an employee works in. Some companies have a fixed percentage of bonus. In that case, employees can’t do anything. In companies where there is no set percentage, employees can try to negotiate their bonuses.
So, this is everything you should know about bonuses.
We hope it helps.